Changes to Day-Trading Margin Requirements

Effective September 28, 2001, the NASD enacted changes to day-trading margin requirements, which may affect your account.

The NASD provides that a pattern day trader is any account that executes four or more round-trip day trades within any rolling five-business-day period, provided the number of day trades represents at least 6% of the total trading activity during the same five-business-day period. Day trading is the practice of purchasing and selling, or short selling and purchasing to cover, the same security in the same trading day within a margin account.

If activity in your account is classified as "pattern day trading," you may be subject to the following restrictions:

Minimum Equity Requirement — A pattern day trader's account must maintain a minimum equity of $25,000 on any day in which day trading occurs. Pattern day-trader accounts that fall below the $25,000 minimum equity requirement should consider limiting day-trading activities to cash-only transactions until the minimum equity amount is reached in order to avoid a day-trading buying power call.

Day-Trading Buying Power — Day-trading buying power is equal to the equity in your account at the close of business the previous day, less any maintenance requirements, multiplied by up to four. Accounts that are engaged in day-trading activities should consider being limited to day-trading buying power.

Day-Trading Minimum Equity Call — If your account has less than $25,000 equity and is identified as a pattern day-trading account, a day-trading minimum equity call will be issued. Pattern day-trader accounts that fall below the $25,000 minimum equity requirement should consider limiting day-trading activities to cash-only transactions until the minimum equity amount is reached in order to avoid a day-trading buying power call. Funds deposited in an account to satisfy a day-trading minimum equity call are subject to our 10-business-day hold policy with the exception of wires, which must remain in the account for two business days.

Day-Trading Buying Power Call — If your account meets the minimum equity requirements for day trading and exceeds the day-trading buying power at any time throughout the day, a day-trading buying power call is issued. Once a day-trading buying power call is issued, the day-trading buying power is restricted to two times margin maintenance excess for five business days unless the call is met earlier. If the day-trading buying power call is not met within five business days, the account will be permitted to execute transactions only on a cash-available basis for 90 days, or until the call is met. Multiple day-trading buying power violations may result in a restriction limiting transactions to a cash-available basis. Day-trading calls can only be met by depositing cash or fully paid securities, by selling non-marginable securities, or selling long options held in the account. Funds deposited in an account to satisfy a day-trading buying power call are subject to our 10-business-day hold policy with the exception of wires, which must remain in the account for two business days.

Additional restrictions may apply. For more information, please refer to the Margin Handbook. If you have specific questions about how these rules may affect you, please e-mail us at: clientservices@freetrade.com. You may also view the rules on the NASD Regulation Web site.  Top